It is a true honor to be with you today at the NAFCU Congressional Caucus. As I complete my second full year on the NCUA Board, I want you to know that my

respect for this outstanding organization could not be higher, and I would like to express before I go any further my admiration and appreciation for the leadership provided to NAFCU and the entire credit union movement over the years by General Ken Robinson. At his last Congressional Caucus as President and CEO of NAFCU, I want to take this opportunity to state publicly, Ken, that you will be greatly missed. It is said that no one is irreplaceable and that when anyone pulls his arm out of a bucket of water, the water always fills the space. Well, with some folks it takes more water to fill the space than others. Ken, you are one of those and I personally will miss your leadership at NAFCU. I wish you and Marie the best in your retirement and look forward to still seeing you and working with you in other capacities.

I am asked often what I feel is the primary role of NCUA as regulator and insurer. Are we the arbiter of disagreements among credit unions who are part of a cooperative movement? Are we the evaluator of member service, both its adequacy and its quality? How about the social conscience of individual credit unions, are we the compliance officer to determine how deep that social conscience goes or if the credit union is doing everything it can to fill its own social contract between the credit union and its member-owners?

I would say the answer is "no" as to whether any of these is the primary role or even a proper role for a federal regulator. Either credit unions value their cooperative structure and work together for the good of the overall movement or they do not. Either they believe in their social mission or they do not. It cannot be imposed from the outside. And certainly it cannot be government imposed.

I submit that credit unions do believe in and live by their cooperative structure. I believe the record clearly indicates that credit unions are committed to your social mission and are fulfilling it every day, but not because you are mandated by your regulator or any other government body. You cooperate because you are cooperatives and your history is one of cooperation. You see the value, whether it be in successful legislative initiatives like the battle for HR 1151 or in shared service centers, co-op marketing programs and active chapters and leagues. You retain your heartbeat for service to their entire field of membership, folks from all walks of life, because you believe you should but also because the members demand that you must.

Members are the ultimate regulators of member service. The social conscience of individual credit unions is judged every day by the members who stand in teller lines, sit at loan officers desks, fill out payroll deduction forms, make loan payments, and - in general - trust their hard-earned dollars to the

member-owned financial cooperatives they call "their credit union."

Looking at today's historical highs in credit union membership, especially in new members, as well as performance in asset and loan categories which can only be described as extraordinary, it is obvious that credit union member service is being well evaluated by their member-owners. Capital levels, which are the safety and soundness result of the extremely positive performance in these other categories, are, as we say down South, as "strong as garlic." Again, it is obvious by studying the numbers that member service is being given very high marks by credit union member-owners.

And if a credit union is not serving its members to the levels the members demand, the unique structure of a member-owned cooperative allows the members to show up at the annual membership meeting to let their voice and their votes be heard. Those members also have the ultimate regulatory tool in the member service arena inside their shoes - they can vote with their feet by taking their business elsewhere if their credit union is not adequately serving them.

It is clear that the cooperative structure is alive and well without governmental regulatory interference, as is member service and the social contract between credit unions and their member-owners. Neither need, nor frankly benefit from governmental intrusion.

What then is our proper role at NCUA?

It is the job of NCUA as regulator to make sure that, when the member makes his or her decision to open an account at his credit union or, yes, if eligible and he so chooses, his credit unions (I and my family together have memberships at four credit unions), any credit union he chooses is safe and sound.

Despite the other well-intentioned roles that some may wish to say should be ours, the fact remains that NCUA is responsible for implementing the federal credit union act to extend credit for provident and productive purposes within the bounds of safety and soundness.

That is our charge and that should be our focus...the safe and sound extension of credit. Safety and soundness is clearly our overriding charge...it is our job.

As a safety and soundness regulator, NCUA should itself realize that change is a vital and integral part of today's competitive financial marketplace. NCUA should also encourage credit unions to likewise have a commitment to change when members demand those changes in order to continue to meet their financial needs.

It is impossible to separate the ability to compete in today's marketplace from safety and soundness. The inability or unwillingness of credit unions to change as their members do will ultimately result in a lack of competitive position in that marketplace and, since members ultimately control the long term viability of their credit union, safety and soundness concerns could result from a stagnant refusal to accept the realities of change.

That is why NCUA so strongly emphasizes strategic planning in the credit unions we regulate. "Where there is no vision, the people perish" is more than a Biblical admonition. It is stark reality in today's marketplace.

But if we are to have an emphasis on strategic planning in the credit unions we regulate. We must have the same emphasis as an agency.

We must find ways to provide the regulatory approach which will best facilitate credit unions to catch a vision for not just this generation of members, but also the next. We must empower credit unions to aggressively plan for and implement that vision through innovations that we may not even ourselves always fully understand, nor can we predict how they will be received by the members, but which we must be willing to allow if there are no adverse safety and soundness considerations. We must realize that risk management, not risk avoidance, is the assignment we give to credit unions.

Within the bounds of safety and soundness, we must embrace change and innovation from those we regulate. And we must be willing to change and innovate our regulatory approach as we do.

It is this spirit of change and innovation, both in your credit unions and in our regulatory approach, that I would like to talk about in the few minutes we have together this morning.

Way back a century and a half ago in 1829, Martin Van Buren, who was then governor of New York, wrote the following to President Andrew Jackson:

"The canal system of this country is being threatened by the spread of a new form of transportation known as railroads. The federal government must preserve the canals for these reasons:

*If canal boats are supplanted by railroads, serious unemployment will result. Captains, cooks, drivers, repairmen and lock tenders will be left without a means of livelihood.

*Canal boats are absolutely essential to the defense of the United States. In the event of unexpected trouble with England, the Erie Canal could be the only means by which we could ever move the supplies so vital to waging war.

*And, as you may know, railroad carriages are pulled at the enormous speed of 15 miles per hour by engines, which in addition to endangering life and limb of passengers, roar and snort their way through the countryside.

The Almighty certainly never intended people should travel at such breakneck speed."

The constancy of change which Martin Van Buren was futilely fighting in 1829 remains constant today. While some fight it, others recognize it and embrace it.

Thomas Jefferson certainly never envisioned the Internet and the World Wide Web, but he had the vision to design a system of government flexible enough to not only allow it, but to accommodate it, set up web sites and utilize it to better deliver government services.

Filene, Raiffeisen and Bergengren certainly never envisioned home banking, audio response and virtual branching, but they had the vision to design a cooperative ownership structure which put the members in control of their individual credit unions and the ability to adjust to changing times in their hands.

We sell the vision of Filene, Raiffeisen and Bergengren short if we live in the past and leave the future of innovative financial services only to credit union competitors.

As a regulator, NCUA must create a regulatory environment that allows that vision and innovation to manifest itself in America's credit unions, large and small.

We do not encourage innovation with unnecessary regulation. In fact, regulatory hurdles have become the leading stumbling block to innovation in so many fields. We must not make credit unions run their competitive race on a field which requires them to clear the high jump of constantly upward moving demands for more member service, the sprint of today's fast-paced demands for 24-hour convenience, the relay of cooperation with their fellow credit unions, the competition of other teams who are training constantly and fighting hard to beat your time - while at the same time clearing hurdles that are placed by a regulator whose real responsibility is to make sure they run a proper race and abide by the rules.

We must remove the hurdles that are not applicable to the race of member service, but are there for only the race of safety and soundness. Leaving the hurdles out for races where they do not apply is causing the runners to stumble.

Yet, some attempt to distort this role of NCUA as safety and soundness regulator. Recent proposals, for example, that would require NCUA to put additional regulations on credit unions to mandate some arbitrary and subjective higher standard of member service in hopes of putting the pawn shops and check cashers out of business would be somewhat akin to the FDA deciding to address the dangers of nicotine in tobacco by choosing to put new reporting requirements on the folks at Nicorette to make sure they are selling enough gum. Nicorette is part of the solution, not the problem.

If states need to regulate predatory lending, then they should regulate it. I would support such an effort. But it is no answer to regulate Nicorette gum when the nicotine is the problem. And don't put unnecessary regulation on the credit unions who are out there in the trenches every day trying to provide an alternative to the check cashers and pawn brokers. Empower the credit unions to become more innovative, extend their member service further and to more members, and to improve their competitive position and safety and soundness in the process. Credit Unions are part of the answer to predatory lending - if we allow them to be.

If more regulation would put the pawn shops and title loan companies out of business, they would have disappeared with the passage of CRA in 1977. Obviously, more regulation is not the answer.

Does NCUA have a role in doing this? You bet.

Can we fulfill our role with inflexible regulatory thinking? No way.

But, in defense of NCUA, I do not believe the agency built its reputation, nor did the credit union movement build its strong position, through excessive, stifling regulation. NCUA built its reputation as an effective, rather than an excessive regulator. Where we have left that approach, we must return. Same with credit unions, innovation in member service has help fuel the strong credit union position. Any credit union that allows the day to day operational issues of the present to divert them from strategic planning to face the growing expectation demands of tomorrow should also re-examine its focus.

Credit unions should keep innovation in member service at the forefront of their business planning. NCUA should more than allow that innovation to blossom, we should fertilize it through reasonable and flexible regulatory relief, as always, overlaid with the fabric of safety and soundness.

Today, I would like to make you aware of a proposal that I intend to bring before the NCUA Board for consideration in the spring of 2000. I hope that you will begin even now to allow your visionary thinking to evaluate this proposal and perhaps contribute to it through the comment periods that I hope will be forthcoming if my Board colleagues agree with me that reasonable and flexible regulatory relief is a priority and an approach they can support.

Every risk intensive industry in America today bases its underwriting requirements on the level of risk involved.

From auto insurance which requires less documentation and even lower rates from those with safe driving records to life insurance which gives better rates to those are younger or do not sky-dive, the insurance industry realizes that risk management is the key component in their evaluation of underwriting standards. In effect, they allow those with less risk to earn more empowerment through less regulation.

We should take the same approach.

I am calling my proposal: REG-FLEX

It is based upon my belief, honed in the trenches of the credit union movement as a former credit union manager and re-enforced through the difficult policy and safety and soundness issues I have dealt with in my two years on the NCUA Board, that safe and sound credit unions with solid capital levels and high CAMEL ratings have earned more regulatory flexibility, hence the name REG-FLEX.

Likewise, we as an agency would be more effective if we focused more of our resources on those credit unions who have not attained those solid capital levels and are in need of more support and assistance from NCUA. We can free those resources to help the credit unions who need our supervisory assistance if we have less of our resources used in what could be described as over-extension of our proper regulatory arm into the day-to-day business decisions of safe, sound, well-managed credit unions who have, by their performance, proven their ability to manage risk effectively.

I do not intend Reg-Flex to be another "all sizzle and no steak" regulatory relief proposal. I am not talking about reviewing our existing regs every few years in the type of symbolic review process that usually results in no significant relief and only a regulatory fold and tuck here and there.

I want to see Reg-Flex be the cornerstone of NCUA's regulatory approach in the year 2000 and beyond. I see it as the flip-side of PCA, the carrot to what is perceived as PCA's stick.

Reg-Flex will allow credit unions with strong capital positions and solid CAMEL ratings to earn regulatory relief from specific NCUA regulatory requirements and allow expanded authority in areas more tightly regulated than they might need to be for a credit union with a proven track record of effective risk management.

Areas that we will be looking at to determine if relief can be provided under Reg-Flex will be broad. Some requirements are statutory and cannot be eased. Others have safety and soundness components and are therefore cannot be put under Reg-Flex. However, what about fixed asset limitations, investment authority, CUSO investments, examination scope or perhaps frequency, and even some aspects of field of membership expansion authority that are not statutorily prescribed. Yes, I recognize that field of membership issues are also regulatory issues. And unnecessary delay and documentation overkill on field of membership expansion is indeed a regulatory problem in need of relief. Particularly as it relates to low-income communities and select employer groups, there is much we can do to extend credit to more people who need it by making it easier, not harder, to get a charter expansion.

I am convinced that Reg-Flex can do more to foster innovation in member service and to extend credit to the underserved than any new regulatory mandate ever could. Why? Because the emphasis of Reg-Flex is on greater regulatory flexibility, less paperwork and credit union empowerment. CRA-type regulations provide just the opposite: less flexibility, more paperwork and restrictive mandates that quench the innovative spirit.

Just as over-regulation can kill innovation, less regulation can empower innovation.

Thousands of credit unions each year debate innovative programs to extend their services to underserved members. I know, as I know you do, because I have been there that one of the most pressing questions they must answer is what will be NCUA's regulatory response to any new program.

Will NCUA write me up because my delinquency ratio goes up a few basis points as a result of these higher risk loans? What about my charge-off rate if some of them go bad?

Will that new mobile branch to serve a low-income SEG raise my expense ratio above the peer average? What about its impact on my 5% fixed asset cap? Will my earnings component in CAMEL go down if the program is slow to get started? Will my management component follow because I approved this program?

The overwhelming majority of credit unions move forward with these innovative programs each year despite the possibility of a regulatory over-reaction. Unfortunately, some do not.

If NCUA truly wants to see greater levels of service to the underserved (and I do), we need to model a flexible regulatory approach that removes some of these questions and deterrents. Reg-Flex would do so.

As an example, the credit union who considers a new branch to extend its service, a mobile branch to visit low-income SEGs or a new computer system to enable them to offer new services that their old system cannot handle will be more likely to move forward with these services if they are not restricted by a 5% fixed asset cap. And, if that credit union has 12% capital and a solid CAMEL rating, why do we believe they cannot manage the risk? Their performance clearly indicates that they can. But we restrict their innovation through the fixed asset cap, even though they have proven they can manage the risk. This approach cries out for regulatory flexibility.

Now, should all credit unions be exempted from the cap?

Of course not. So what do we do? Since everyone should not be exempted, we basically exempt no one. Well, that "one size fits all" approach is what leaves us with a inflexible regulations 5% fixed asset cap.

Because all credit unions have not demonstrated the ability to manage fixed assets effectively, our approach in the past has been to cap them all. Under Reg-Flex, we could and I believe we should allow credit unions who meet a certain trigger of capital position and perhaps CAMEL rating to be exempted from that cap.

If credit unions whose capital falls below PCA levels are subject to possible additional regulation, why not allow those credit unions whose capital is above certain levels to earn regulatory relief. Reg-Flex will do so.

Of course, as always, safety and soundness will be the fabric from which Reg-Flex is fashioned. When necessary, the regulatory relief granted must be pulled back if safety and soundness issues arise in a particular credit union who has previously been granted Reg-Flex relief.

But why can't NCUA think outside the box. We encourage credit unions to do so through your strategic planning process. And then we often restrict your ability to implement your own vision by our lack of it.

I am convinced Reg-Flex can provide a dramatic shift in the regulatory approach of NCUA and the ability of credit unions to approach the competitive marketplace of the new millennium with innovation and vision. There is a great deal of enthusiasm at NCUA about such a proposal as well. Many believe that it can help stem the early tide of charter conversions from federal to state which could, if not addressed, turn into a tidal wave which would hurt the long term viability of the federal charter and, by doing so, hinder the delicate balance which is our valued dual chartering system. Those who do not realize that our tendency to over-regulate can be a very real threat to federal charters and an impetus in the growing move to state charters has their heads in the sand.

A working group at NCUA is working with me to further develop the Reg-Flex program over the coming weeks and credit unions are being consulted each step of the way. This proposal is based upon the realization that Washington doesn't have all of the answers. Through the development of the proposal to the comment period which will be a part of its evolution into what I hope will be a thorough, workable regulatory relief measure approved by the NCUA Board, I encourage credit union folks like you - the heart and soul of the credit union movement, the people who are in the trenches of member service every day - to take your thinking outside the box as well.

Work with us on Reg-Flex. Through your trade organizations such as NAFCU and CUNA, provide us with ideas for regulatory relief that we may not recognize. Comment on the proposal during the comment period. Help us put the steak with the sizzle.

Working together, we can strengthen the credit union heartbeat for member service through less regulatory blockage and, as we do so, empower safe, sound, growing and viable credit unions for greater service not only to this generation of credit union members, but for generations to come.

Thanks to you and NAFCU for the opportunity to be with you today.